Michela Terrazino

Next, a predicted rise in home prices and purchasing

The bailout plan has finally been agreed to after a two week rollercoaster ride.

The goals of the bailout are simple:

• Stop the freefall of house prices
• Make credit available again for homebuyers
• And thus increase house sales and solvency for commercial banks [and solvency for holders of mortgage backed securities]
• Then this return to health in the real estate sphere will stop dragging down the stock market and the whole economy
• Banks free of their worst mortgages can breathe easier and release credit for general consumer buying and for business loans

The plan agreed to by the Senate and House and signed into law on Friday by President Bush is an amended version of Treasury Secretary Paulson's original proposal. It is called the "Emergency Economic Stabilization Act".

The financial rescue plan includes these key elements:

• $700 billion at the Treasury's disposal to buy mortgages and mortgage backed securities. The first stage would amount to $250 billion.
• An increase in federal deposit insurance from $100,000 per person to $250,000.
• An increase in FDIC access to Treasury monies to cover any shortfall in paying out deposit insurance
• Federal taking of stock in aided firms to be sold at a later date to pay back taxpayers
• If in 5 years taxpayers have not recovered the full $700 billion, then the government can impose a tax on financial firms
• A "Financial Stability Board" will be set up that includes major agencies and will report to a Congressional oversight committee

Other things were attached to the bill to make it more attractive to opposing legislators. These included items such as executives who lie in financial reports to the Treasury will have their bonuses taken away. It also included extension of tax breaks for renewable energy and research/development spending, and another year of relief from the "alternative minimum tax" or "wealth tax" was supported. Also, there were changes in regard to "market to market" accounting rules to allow asset value to actually reflect real market conditions.

The Senate bill was copied from the House bill, though it added various elements to attract detractors from both sides. The bill though is essentially Paulson's original proposal.

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The National Association of Realtors Pending Home Sales Index reports an increase in home sales of 6.3% over March. This is based upon reports of signed contracts.

At the same time prices are still lower than last year by 13.1%

According to Lawrence Yun of the NAR Chief Economist: "Bargain hunters have entered the market en masse, especially in areas that have seen double-digit price declines...Regions of the country that have seen sharp price declines, such as the West, are now seeing a sales recovery."

"We are seeing an acceleration in foreclosures. As foreclosures have taken off, they put pressure on prices. Banks have become more aggressive with sales on homes they have foreclosed." said Christopher Low, chief economist at FTN Financial in New York.

Also, Low noted: "Sales will stabilize in the next few months and that will set the stage for inventories turning to normal sometime next year and maybe even for prices to appreciate a bit," he said. "For now, prices will continue to fall. There is still an inventory overhang that will take 18 months to work through. The end game of the housing bust is near."